$92 Million in Unapproved Change Orders; $113 Million in Cost Overruns; Incompetent Board: Inspector General's WAPA Audit Exposes Propane Project Fiasco

The V.I. Office of the Inspector General will soon publish its findings after probing for over a year the V.I. Water and Power Authority's contract with VITOL for the infamous propane conversion project that was supposed to bring relief to Virgin Islands ratepayers facing at the time skyrocketing fuel prices.

The Consortium has obtained a copy of the final audit which has been provided to certain government officials and is expected to be published by the O.I.G. at any moment. It delineates practices by a water and power authority that fumbled greatly in its stated goal to lower the power costs of customers when in July 2013 it embarked on a propane conversion project whose original cost was $87 million, but final total exceeded $200 million.

From a management team that oftentimes ran a clandestine operation opaque to even WAPA board members, to building a $2.2 million truck rack system without prior approval, the audit uncovers high levels of incompetence at the authority — from management to the WAPA board itself — during the years it was consumed by the propane conversation project. At the time, the authority was led by Hugo Hodge, Jr.

The audit commenced it Oct. 2019 and concluded in Dec. 2020. It was requested by the V.I. Public Services Commission which sought a review of Vitol's justification for expanding the scope of work and almost doubling the project's cost, according to the O.I.G.

"WAPA’s management did not follow WAPA’s established procedures for contracts and change orders," reads the audit. "In addition, WAPA’s contract negotiations lacked transparency. Furthermore, WAPA officials created an apparent conflict of interest when they engaged the professional services of a firm that also worked for Vitol during a similar time period. Finally, WAPA did not achieve its goal to convert the number of power-generating units it needed to burn Liquid Petroleum Gas (LPG), and did not ensure that its rented units could burn LPG as stipulated in rental agreements."

The audit also stated, "As a result, the project’s total cost has exceeded $200 million, including the board’s construction cost limit of $160 million, $10,228,191 in other professional services rendered to bring the project to substantial completion, $31,613,305 in operation and maintenance fees, $138,500 in accounting fees, and $2.2 million for a truck rack system. Not included in this cost are added fees that may have resulted from late payments that led to a third contract amendment.

"Additionally, $92 million in change orders were not approved, and over $2 million was paid for professional services without the Board’s approval. Further, WAPA was left with three of five converted units to burn LPG; WAPA invested $10 million to convert two units that were removed from service; and, WAPA incurred over $43 million in rental cost for units that could not burn LPG."

Project Costs

The audit found that WAPA failed to monitor project costs. "Although an executive director indicated to the board that the project's cost was being monitored for reasonable or actual cost, interviews with WAPA’s Project Management Team showed that they were not monitoring project’s costs. We found that WAPA management knew about Vitol’s revised budgets; however, they did not evaluate the cost associated with the proposed increases," reads the audit.

"WAPA's in-house management team included the executive director, a financial advisor, project managers, and the general counsel. We found that no team member had assumed the responsibility for monitoring the project’s costs from interviews conducted. For example, the chief financial officer who served as the financial advisor for the project stated that he had no role in the Project after the contract was signed. The chief operating officer who served as the head project manager stated that his responsibilities involved the environmental aspect of the project to include permitting and evaluation, coordinating and interfacing any issues that WAPA had about the Project, and reporting those issues to Vitol. Also, the director of project management, who served as the project coordinator, stated that he supervised WAPA’s engineers and inspectors charged with monitoring the progress of the work. He, in turn, reported to the executive director and the head project manager. Finally, the then-general counsel stated that her involvement in the project was assisting WAPA’s external law firm with the request for proposal process, participating in contract negotiations, and drafting Vitol’s contract.

"Therefore, while WAPA’s Board was given the impression that the project's cost was being tracked for at a minimum, reasonableness, they were not. The project's cost was not assessed until the Project was substantially completed when WAPA contracted with an accounting firm to evaluate the cost."

Project Planning

On project planning, the O.I.G. found that WAPA did not fully exercise due diligence. Instead, the authority focused more on project progress than cost. The WAPA board also played a role in the runaway costs as it failed to ensure that it "mitigated WAPA’s financial risk when they approved the project without detailed engineering plans," according to the audit. "Instead, they allowed a design and construct as-you-go project. Also, they did not ensure that a cost-benefit analysis was done to routinely assess if and when the project's cost started to negatively affect its benefits."

"The board and management pursued the project in a manner to suggest that the savings to WAPA and its customers would justify its cost, when projected cost had not been fully established," the O.I.G. audit found. "The board relinquished the control of the project to Vitol and WAPA’s project management team without putting added controls in place to ensure that WAPA’s financial interest was protected."